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I am in Germany, preparing a profile of the Pope - but all the talk is about a politician and banker who has caused outrage by his comments on immigration.

Thilo Sarrazin has written a book called Germany Abolishes Itself. He is a member of the left-leaning Social Democrats (SPD) and on the board of the Bundesbank. His concern is that immigrants who do not integrate are undermining German identity. It is an echo that can be heard in many European countries.

But in comments at the start of a book tour he mentioned that, in his opinion, "all Jews share a certain gene". It is not acceptable in Germany to make comments like this - with all their resonances of the past - and condemnation came swiftly. The German Chancellor Angela Merkel said the remarks were "completely unacceptable" and has called for his removal from the bank.

The thrust of the book, however, is aimed at immigrants that do not integrate and, in particular, at Muslim groups. He points out that only 3% of men of Turkish origin and only 8% of women of Turkish origin marry Germans. This compares badly with other groups, he says. He says that in Berlin 20% of all acts of violence are carried out by only 1,000 Turkish and Arab youths; a population group that makes up only 0.03% of the actual population in Berlin.

He says of Islam that "with no other religion is there such a fluid connection between violence, dictatorship and terrorism as there is with Islam". He says "boys are taught an exaggerated idea of the readiness to be violent... for the sake of honour you must take the role all the more seriously the less successful you are in the school system".

He goes on to argue that Muslim immigrants are "unwilling or incapable of integrating into Western society".

A leading member of the Turkish community said "this is pure racism". The Council of Muslims called him "the embodiment of an ugly German". The boss of Siemens, Peter Loescher, says the comments "are damaging the international reputation of Germany as a business location".

His remarks have been widely rejected, but they have stirred up real debate too. In the German tabloid Bild, Prof Ernst Elitz, one of the founders of Deutschland Radio, writes that Thilo Sarrazin is a scandalous author but he also speaks the truth about Germany - "too many headscarves. Too many unemployment benefit receivers, with society not getting enough back."

"The real scandal," the professor goes on, "is that this is all known (what Sarrazin says) but nothing has been done about it in Germany". The first 40,000 copies of the book have already been sold.

Similar fears have been expressed in many parts of Europe. In the past they have largely been confined to the fringes of society, but in countries from France to Switzerland to the Netherlands they have entered more mainstream debate. At their root is unease at the speed with which society is changing and a concern that societies may develop separate, parallel communities.

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For the French president "la rentree" has arrived; he returns from vacation today and holds his first cabinet meeting. This is also the start of two months that will define his presidency and his chances of re-election.

Nicolas Sarkozy's pension reforms, which are at the heart of his claims to modernise France, will be tested on the streets. The retirement age is due to go up from 60 to 62. Workers will have to work longer and pay more towards their older age.

On 7 September the unions are planning a day of strikes and protests. There is likely to be widespread disruption. They want this to be the biggest day of action so far. It will be a critical battle of wills. The French government wants the pension reform approved by parliament by October. Everyone knows, however, that many previous reforms have been defeated by street protests.

At the same time, the government has to announce how it will cut the budget. France is committed to reducing the budget deficit from 8% to 3% by 2013. Mr Sarkozy
resisted the moves towards austerity announced by other countries. His ministers were told not to mention "la rigueur" - austerity.

But times have changed. The ratings agency Moody's hinted that France was edging closer to losing its AAA status. If that were to happen it would be a disaster for France. Not only would the cost of borrowing increase but the country and its president would lose serious face.

So last week Mr Sarkozy interrupted his vacation and summoned his finance and budget ministers to the Fort of Bregancon. Projections of growth for next year, which were widely disbelieved, were scaled back from 2.5% to 2.00%. There are still plenty of observers who doubt these new figures. But all of this was intended to signal to the markets that France was serious about reducing its deficit.

So an austerity package will have to be unveiled. To reduce the deficit to just 3% by 2013, 100bn euros (£82bn) of spending cuts or tax increases have to be found. The government has already ruled out increases in VAT, income tax and corporation tax. It is looking to eliminate 10bn euros in tax loopholes. Greater pain cannot be avoided. Civil servants' pay is likely to be frozen. There will be no increases in state spending.

Cuts are difficult for any government; they will be particularly difficult in France. The country had an easier path through the recession than most other European economies. It will now have to be explained why the public sector has to be reduced.

For the president, facing re-election in 2012, he already sees his poll ratings hovering around 34%. Moves against illegal Roma camps have not given him an autumn "bounce" that some expected.

"Nicolas Sarkozy gives the impression his hands are tied, "said Francois Miquet-Marty, an analyst at Viavoice. "Ultimately the impression is that he is at the mercy of the economic climate rather than in control of it."

The next few weeks will be a formidable challenge for the French president.

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It is a desperate way to survive. In many European cities you can find women begging for money. Many of them are Roma. They squat on the Champs Elysees. They stand by the Brandenburg gate in Berlin or in the square at Alexanderplatz. Many carry children and some have cards asking for money. They sit on the stairs leading out of the metro station at Avenue Louise in Brussels. They crowd around the entrances to the Gare du Nord in Paris.

There is evidence that much of the begging is organised and controlled by men. The women are expected to bring in at least 50 euros a day. Some, like outside the Gare Du Nord, operate in groups of up to 15. The police believed that invalids and children, who are used to gain sympathy, are shared out between the groups.

It is the view of the French president that begging is part of a wider deeper problem involving some of the Roma. He believes that illegal Roma camps on the edge of French cities are a linked to serious crime. The Elysee Palace explained that the Roma camps were "sources of illegal trafficking, profoundly shocking living standards, the exploitation of children for begging, prostitution and crime."

Other countries have recently taken action against Roma groups. Demark has expelled some of them, so has Sweden. Germany has paid some to return to Bulgaria or Romania, where most of them originate from.

But it is the action taken in France that has caused most controversy. President Sarkozy has ordered the police to break up 300 illegal Roma camps, and there are plans - starting today - to deport 700 of them. The President also wants those of "foreign origin" who attempt to kill police or other officials to be stripped of their French nationality.

These moves were prompted by an incident in Grenoble. Shots were fired at police after a young man of North African origin was killed by police while trying to rob a casino. In a separate incident, Gypsies rioted after one of them was shot dead failing to stop at a checkpoint.

Mr Sarkozy's view is that "French nationality must be merited, and one must be able to show themselves worthy."

The Roma have a history of being persecuted. Many were killed by the Nazis. For centuries they have lived nomadically. There are thousands of Roma who are French citizens and have lived peacefully and lawfully in France for years. Many have full-time jobs and never beg. However, when Romania and Bulgaria joined the EU in 2007 the people gained the right to travel and to live in other European countries. Many Roma groups took advantage of that and there are estimated to be 15,000 of them in France. The French insist they have to apply for a work permit or they have to leave after three months.

Some have accused the French president of pandering to the far-right, of stigmatising a vulnerable group. One MP from the president's own party called the round-up "disgraceful" and compared it with what the Nazis did. However, the measures appear to be popular with the public and the president has seen his poll ratings edge up.

The secretary-general of Mr Sarkozy's party, Xavier Bertrand, said the actions were "a slap in the face" for the politically correct.

"As usual, 'Sarkozyism' is out of step with the elites but in step with society," said Interior Minister Brice Hortefeux.

Some of the Roma were leaving today. Those who went voluntarily have been given 300 euros and an airline ticket.

The EU guarantees "freedom of movement" but the legislation "expressly allows for restrictions on the right to move freely for reasons of public order, public security and public health".

The crackdowns are unlikely to be successful in the long-term. In their own countries many Roma cannot find work, and sooner or later they will return to Europe's wealthiest cities.

Years ago, the one-time dissident and Czech President Vaclav Havel said that the Gypsy problem was "a litmus test not of democracy, but of civil society". The challenge now is not just to countries like Hungary or the Czech Republic, but also to much of Europe.

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As we entered summer the mood in Europe lifted.

The threats to the euro seemed to have passed. It was easier and less expensive for governments to raise money. The banks were put through their stress tests and most of them passed. Greece was praised for its budget-cutting rigour.

And then growth - which had proved so elusive - returned. The eurozone grew by 1% in the second quarter. That was more than many had hoped for.

But you don't need to probe very far beneath the surface to find nerve endings jangling. One set of figures, like a suggesting that investor confidence is actually slipping, can rattle markets.

Firstly, Europe's growth is hugely dependent on Germany. It is once again an economic powerhouse. Its exports are surging. Papers in Germany are calling it a new "economic miracle". The economy is now growing at its fastest in 20 years. If any country is hauling Europe out of recession it is Germany.

"It is the same old story," says Carsten Brzeski of ING. "Germany is in a league of its own, carrying a few of its neighbours along, and beneath that, the laggards that are teetering on the brink of recession."

In the eurozone there are really three economies. There is Germany which in the second quarter saw growth of 2.2%. It is way out in front of the rest of the pack.

Then there are the middle-rankers like the Netherlands and France which saw growth of 0.6%.

Then there are a clutch of weak countries at the back of the field. Spain, with a growth rate of 0.2%, is barely out of recession. The Greek economy actually shrank by 1.5%. Ireland is struggling.

So the great divide is widening. A relatively weak euro, brought lower by the difficulties in countries like Greece and Spain, is benefiting Germany. Many economists believe the euro is too strong for the weaker eurozone countries.

Now Germany remains committed to austerity. Even though tax revenues are proving healthier than imagined, Berlin is committed to slashing its budget by 80bn euros (£66bn) over four years. A spokesman for Angela Merkel was quoted in the Financial Times as saying that "consolidating the budget is the main priority".

That is the message - get the deficits down, shrink the debt. Germany could ease off but it won't; it fears other countries would lose their appetite for spending cuts. As Angela Merkel said earlier in the summer, when defending her austerity package, Germany has to set an example.

The big argument over austerity is set to intensify. Budgets are being slashed but the question is whether they pave the road to economic health or whether they lock countries in a cycle of decline.

The EU and the IMF have heaped praise on Greece. It has made "remarkable progress" in cutting its spending. Down 40% this year. But its economy is shrinking. It contracted 1.5% in the past quarter and is expected to decline by 4% for the year. Unemployment is 12% and rising. Tax revenues are less than predicted. Investment is down. It is unclear where growth will come from.

Take Ireland. It was called the "poster boy" for attacking its deficit. It embraced austerity early and courageously. Not only were public sector wages cut, but benefits too. The pain was not spared. Carers are having their hours cut. Some hospital beds are being closed. But more bad debt was discovered in its banking system and its budget deficit has actually gone up to 18.6%.

Meanwhile, all around are signs of deflation. In parts of the private sector wages have fallen by over 10%. Prices fell by 1.2% in July after falling by 2% in June. Rents are down. Unemployment is 13.7%. Ireland has yet to pull out of its dive.

Spain was always a reluctant budget cutter. The government resisted until outside pressure forced its hand. Its economy is so weak that unemployment remains over 20%. Public sector wages have been cut by 5%. There are reductions in benefits.

So Europe is witnessing a booming Germany and savage deflation in the weaker countries in the eurozone.

Many of the austerity measures are yet to hit. It is early days. The stories about medicines not being available on the state, or of childcare being cut, or of teacher shortages, are still anecdotal. What is certain is that the public sector is set to shrink. It is a fair bet that sometime during the autumn some governments will wobble over their austerity programmes. There may even be calls for fresh stimuli.

Europe's bailout packages bought the eurozone time. There is serious work going on to address the problems. The Task Force on Economic Governance, chaired by Herman Van Rompuy, is acutely aware that the crisis has not passed. Growth may ease the stresses and strains, but the big question remains unanswered: how can countries with such different economies inhabit a monetary but not a fiscal union?

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